MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING MONDAY APRIL 27, 1998 (2)
OIL & GAS
Oil Prices In Asia Rise Slightly On OPEC, Iraq
SINGAPORE, April 27 - Crude prices in Asia rose slightly on Monday after OPEC heavyweights raised the prospect of deeper export cuts in the oil cartel's output in the second half of the year, traders and analysts said on Monday.
However, they said they did not expect the comments to spark a fresh rally while the market is still trying to absorb a supply glut.
Weekend sabre-rattling from Iraq over global sanctions imposed after it invaded Kuwait in 1990 added a further bullish tinge to the market but offered it little reason to rally, they said.
"It's their usual practice, so the market's focus will not be detracted unless it turns nasty again," said Tom James, Asia managers for commodity derivatives for Credit Lyonnais Rouse.
New York Mercantile Exchange (NYMEX) June futures contracts, trading on the out-of-hours ACCESS system, were last traded at 0810 GMT at $15.20 per barrel, up 11 cents compared with New York's close.
The June Brent contract, trading on the Singapore International Mercantile Exchange (SIMEX), was offered at $14.00 per barrel at 0810 GMT, but no bid was shown.
The Middle East Gulf Arab states -- which hold most of OPEC's crude reserves -- signalled over the weekend they were ready to cut production again in order to bolster prices, which have remained stubbornly low despite OPEC cuts of 1.245 million barrels per day (bpd) put in place April 1.
Obeid bin Saif al-Nasseri, United Arab Emirates oil minister and president of the Organisation of the Petroleum Exporting Countries (OPEC), said at the weekend that current oil prices were unsatisfactory and that coordinated action between the oil group and non-members might be needed by the time OPEC next meets in June.
"If the oil price stays where it is now there will be a lot of talk about further cuts and we don't rule out any possibility," he told Reuters in an interview.
"We feel that the responsbility of the oil prices does not rely only on OPEC members' shoulders. The non-OPEC countries have also a responsibility and interest in seeing the oil price a little bit higher," he said.
Oil traders said that the comments had been largely expected by the market because of the weakness of oil prices.
"It's pretty much common knowledge that if prices continued to slide that you know they'll have to do something," one broker said.
James said the OPEC president and other Gulf states were preparing the way for further cuts.
"Some of these expectations are already in the market, that OPEC is ready to cut back if prices are not supportive," he said.
"The market will get a bit of support on this, but it's really the forward curve -- the fourth quarter and first quarter next year -- that will get most out of it."
Although the futures markets are already trading contracts for June settlement, OPEC ministers are likely to look at oil prices at the time of their June 24 meeting in Vienna to assess the need for greater production cuts.
More immediately, the oil market is expected to watch the United Nations in New York later on Monday, when sanctions against Iraq are due to be reviewed.
At the weekend, Iraqi Foreign Minister Mohammed Saeed al-Sahaf said Baghdad would withdraw cooperation with the U.N. if it appeared the oil-for-food deal was being used as a substitute for lifting the crippling economic sanctions.
The next round of oil sales is due to start in June and in effect Iraq can produce at maximum capacity after the U.N. sanctioned sales totalling more than $5 billion over six months -- considered more than Iraq has the capability to produce.
Crude prices are recovering from a nine-and-a-half year low hit in March which prompted the global output cuts.
OPEC Must Be Prepared for New Concessions-Kuwait
KUWAIT, April 26 - OPEC states should be ready to make more production cuts if oil prices remained low, Kuwait's oil minister, Sheikh Saud Nasser al-Sabah, said in an interview published on Sunday.
If world oil prices are still low when OPEC meets in June "then there must be concessions or sacrifices...to lower production...and balance supply and demand," he told the weekly newspaper al-Ektesadia al-Jadida.
As part of an agreement by OPEC and non-OPEC oil exporters, Kuwait took a 125,000 barrel per day (bpd) production cut from April 1 to help boost world oil prices which had dipped to nine- year lows. Kuwait has an OPEC quota of 2.19 million bpd.
Sheikh Saud warned that Kuwait could face an "economic catastrophe" if Kuwaiti crudes remained at $10.50 a barrel.
The current budget to the end of June estimated oil revenue at $13 a barrel. The 1998/99 budget (July-June) lowered the projection by $1 to $12 a barrel.
"If this situation continues, the deficit in the next fiscal year will exceed two billion dinars ($6.55 billion)," said Sheikh Saud, who was moved to the oil ministry from the information ministry in a cabinet reshuffle last month.
Kuwait's cabinet earlier this month approved a 4.86 billion- dinar 1998/99 (July-June) budget with a projected deficit of 1.73 billion dinars.
Oil revenue in the new budget was put at 2.577 billion dinars -- marginally higher than forecast revenues of 2.555 billion dinars a year for 1997/98 and 1996/97.
It was calculated at a daily production of 2.035 million barrels, at $12 a barrel, an exchange rate of 302 fils to the U.S. dollar and a production cost of 400 fils per barrel.
There are 1,000 fils to the dinar. Sheikh Saud said in the interview that Kuwait had "very low" production costs "and any price is a profit for us but for some other (oil exporting) countries the cost is high and they cannot bear a price lower than $8-$9 a barrel."
Kuwait controls slightly less than 10 percent of the world's proven oil reserves and according to experts it can produce crude oil at current levels for more than 100 years.
Sheikh Saud, who also heads Kuwait Petroleum Corp (KPC), said the state-owned firm was currently the seventh largest oil company in the world.
"We aspire to become the largest among global companies," he added. "I support the move for participating with the large (international) firms to work on projects inside and outside Kuwait."
The minister was apparently referring to the controversial issue to open Kuwait's state-controlled upstream oil sector to foreign companies.
Kuwaiti officials and Western oil executives earlier told Reuters the Gulf Arab state was eager to grant foreign oil firms a role in its oil industry to boost production but it is still searching for a formula acceptable to Kuwait's parliament and foreign bidders.
Industry executives said the Supreme Petroleum Council (SPC) favours a foreign role based on yield-linked cash incentives, a formula which could work around constitutional limitations, but details are still under consideration.
Some MP's stress that production sharing would be in violation of the country's constitution.
"It will happen. It might take some time to arrive at the right formula but Kuwait will eventually open up" to foreign firms to secure needed technology to implement a some $13 billion plan to raise production capacity by one million bpd early in the next century from a current 2.4 million bpd, a senior Western oil company executive told Reuters.
Gulf Arab States Ready For OPEC Oil Output Cuts
DUBAI, United Arab Emirates - Leading Gulf Arab states in the Organization of Petroleum Exporting Countries, weary of low oil prices, have signaled their readiness to cut exports again, OPEC ministers said Sunday.
With prices stubbornly staying close to their lowest level in nine years, some of the world's most powerful oil states have raised the prospect of a further round of output cuts when OPEC ministers meet again June 24.
Qatar, Kuwait and the United Arab Emirates by Sunday said they supported calls for OPEC to boost prices by stemming flows to the industrialized world.
''I support every effort to protect the oil price even if it is a cut, and whatever the cut may be I will support it,'' Qatar's Oil Minister Abdullah bin Hamad al-Attiyah told reporters.
''We believe (oil) prices are still weak,'' he added. Attiyah spoke after OPEC President Obeid bin Saif al-Nasseri told Reuters that the 11-member cartel would consider further output cuts if prices remained in the bargain basement and provided non-OPEC producers were willing to reduce supplies.
The size of the potential cut was not determined but would be on a ''pro-rata basis,'' meaning OPEC states and those producers outside the group ready to trim supplies would implement the same percentage cut in output.
''If the oil price stays where it is now there will be a lot of talk about further cuts and we don't rule out any possibility. If it is necessary I think this can happen,'' Nasseri, who is also oil minister of the United Arab Emirates, said in the interview Saturday.
''We have some news that's saying, or demanding, further cuts but what level or volume has to be taken from the market, this is something that has to be discussed further...Cuts would depend on the future direction of oil prices and the response of non-OPEC producers,'' Nasseri said.
The oil minister of kingpin Saudi Arabia, Ali Naimi, earlier this month was reported as saying that further cuts by OPEC and non-OPEC producers were possible if necessary.
''...there is a positive trend of commitment among the producing countries and...there is a willingness to cut more volume if need be,'' Naimi told the Middle East Economic Survey (MEES) newsletter.
Saudi Arabia had not changed its position, a Gulf source said: ''It's still the case.''
Kuwait Oil Minister Sheikh Saud Nasser al-Sabah added to a call for cuts if prices failed to pick up ahead of the OPEC meeting in Vienna.
''...there must be concessions or sacrifices...to lower production...and balance supply and demand,'' Sheikh Saud said in an interview published on Sunday in the weekly newspaper al-Ektesadia al-Jadida.
Sheikh Saud, who became oil minister last month, said Kuwait could face an ''economic catastrophe'' if the price of the country's crude remained at $10.50 a barrel.
Non-Arab Iran -- OPEC's second largest producer -- has traditionally supported moves to restrict supplies to underpin prices. The Islamic republic is expected to back any move in Vienna to turn down producers' taps, analysts said.
The secretary-general of the Organization of Arab Petroleum Exporting Countries (OAPEC) Abdul Aziz al-Turki was quoted on Sunday as saying that oil markets were in imbalance because of high supply and low demand.
''There is nothing that might be considered a major solution, but we can agree on some measures that would balance the international oil markets,'' al-Turki told the official Kuwait News Agency.
Any OPEC production cut would be the second time this year that the group has cut supplies in an attempt to turn prices around. During an emergency session last month, OPEC sealed cuts of 1.245 million barrels per day effective from April 1.
But despite the promised cuts from OPEC and non-OPEC producers, oil prices have remained weak with benchmark Brent crude in Europe trading at around $13.60 a barrel on Friday as traders waited for evidence that the reductions secured under last month's so-called ''Riyadh pact'' would materialize.
Brent traded close to $25 a barrel in 1997 and was quoted at around $18 this time last year.
Nigeria Moves To Comply With OPEC Quota Cut
LAGOS (April 27) - The Nigerian government and oil production companies operating in the country have begun to take concrete steps to reduce oil output in a bid to keep the fall of oil price in the world market.
As party to the Organization of Petroleum Exporting Countries (OPEC), Nigeria agreed last month to work together with other members to restore stability of the oil market by cutting its crude out by 125,000 barrels per day.
The government and oil companies, at a meeting in Abuja recently, agreed on a monitoring procedure to ensure compliance with the cut.
Under the procedure, a report on export from each crude oil terminal as well as domestic supply to refineries will be made on a daily basis.
The Department of Petroleum Resources is expected to supply daily reports on provisional production to assist the monitoring efforts of the Nigerian National Petroleum Corporation (NNPC).
No crude oil tanker or vessel will be given clearance for proposed liftings in excess of the production allowable for each company, according to the agreement.
While reiterating the government directive on production restraint, NNPC group Managing Director Dalhatu Bayero assured the chief executives of oil companies that the new guidelines are being introduced in the interest of both the country, OPEC and the oil firms themselves.
The meeting also confirmed the production allowable for each company based on the cut agreed upon at the OPEC extraordinary meeting last month.
The production cut which became effective on April 1 will see Nigeria's production fall from the February level of 2.58 million barrels per day to 2.455 million.
The figure is still in excess of the country's OPEC production ceiling of 2.042 million barrel per day.
OAPEC Official Pessimistic About Oil Price Rise
KUWAIT CITY (April 26) - A chief Arab oil official expressed Sunday pessimism about quick oil price recovery in the world market though he said some measures to balance the world oil market could be taken.
"There is nothing that might be considered a major solution, but we can agree on some measures that would balance the international oil markets, " Kuwait News Agency quoted Secretary-General of the Organization of Arab Petroleum Exporting Countries (OAPEC) Abdul Aziz Al-Turki as saying.
He said there was growing concern that oil prices would continue to dip, saying that the average price of Organization of Petroleum Exporting Countries (OPEC) oil basket has dropped to 11.20 dollars per barrel late last month compared with 19.5 dollars per barrel last October.
"The price drop reflects the imbalance in international oil markets during recent months when the markets were supplied with oil surpassing its capacities," Turki said.
Saudi Arabia, Venezuela and non-OPEC Mexico clinched a pact in Riyadh last month with the aim of lowering world oil production by 1.6 million barrels per day to 2 million barrels per day to bolster oil prices.
OPEC ministers also agreed at an emergency session last month to contribute a cut of 1.245 million barrels per day to the Riyadh pact, its first output cut in a decade.
However, the cuts failed to bring back the price mainly because of oversupply, declining demand in Asia in the wake of the region's financial crisis, increased oil supply from Iraq under the U.N. oil-for-food deal and warmer weather in the northern hemisphere.
Oil officials from the Gulf oil producing countries have held talks recently on further possible output cut.
Saudi Arabia's Oil Minister Ali Naimi said recently that the OPEC would consider further cuts if necessary at its June 24 meeting in Vienna.
OPEC President and Petroleum and Mineral Resources Minister of the United Arab Emirates Obeid Bin Saif Al-Nasir also said that "if the oil price stays where it is now there will be a lot of talks about further cuts and we don't rule out any possibility."
Venezuela's Giusti - More Oil Output Cuts Not Needed
NEW YORK, April 27 - The head of Venezuela's state oil company said Monday that further oil output cuts may major producers was not yet needed.
''We are looking at a reasonable price situation for what we did,'' said Luis Giusti, president of Petroleos de Venezuela, referring to last month's move by OPEC and some other major producers to cut oil production. ''We shouldn't try to re-write history before it occurs. We are beginning to see a more stable price situation,'' he added.
Asked about plans by Venezuela for further production cuts, Giusti said ''we are not planning to do that.''
Earlier Monday, Venezuela's oil minister, Erwin Arrieta, said in a television interview that the market had stabilized at an ''undesirable level...and probably needs about 500,000 bpd less,'' with Venezuela contributing 10 percent.
Giusti, in New York for presentations to investors about an upcoming bond issue, said he hadn't heard the minister's specific comments.
Separately, Manuel Urdaneta, Petroleos de Venezuela's vice president, corporate finance, reaffirmed that the 200,000 bpd production cuts agreed last month were already instituted. He said Venezuela's heavy crude oil custormers, of which he estimated there was slightly more than 30, were cut across the board.
The investor presentations are for a bond issue of $1.5 billion by a specially-created offshore entity which is structure to achieve a rating from the major bond rating agencies above Venezuela's soveriegn rating.
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